Hypo Alpe Adria bids to offload SEE banking network

By bne IntelliNews May 22, 2012

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Nationalized Austrian lender Hypo Alpe Adria Bank put its banking network in the former-Yugoslavia up for sale on May 21, as the slow unwinding of distressed banking assets continues across CEE.

Hypo Alpe is seeking at least the book value of €1.5bn for six banks spread across Bosnia and Herzegovina, Croatia, Montenegro, Serbia and Slovenia, CEO Gottwald Kranebitter told reporters on in Vienna. A shortlist of bidders should be drawn up before the end of the year, he said as the company is under pressure to show its progress towards meeting conditions for a state bailout in 2009, Bloomberg reports.

"A real success with all these large assets will be not costing taxpayers more money but rather getting the current book value on the market," Kranebitter said, according to Reuters.

The bank claims that it has now successfully restructured its SEE network, which, with six banks, three leasing operations and around €12.5bn in assets, claims to be the third-biggest bank in the former Yugoslavia, after UniCredit and Nova Ljubljanska Banka. The plan is to leverage that geographic spread and size to push the sale through as a single entity run from the current head office in Austria.

The sale comes as the European Commission investigates whether the 2009 rescue constituted illegal state aid. Vienna pumped €1.35bn into Hypo Alpe, gave it a €200m guarantee as the bank faced collapse. The government wrote off €700m of the aid granted in 2011.

However, achieving a book value price to reduce the losses of the Austrian and EU taxpayer could prove tricky, particularly with the Balkan region sending panic waves throughout the banks and economies of Europe once more. Whilst analysts suggested to bne in April that Serbia could prove one of the few markets with the growth prospects to attract buyers in the banking sector, they said they expect few deals to go through, with pricing around 0.2-0.3 times book value.

Meanwhile, Western European suitors are very thin on the ground, to say the least. Hypo Group had pinned its hopes on selling its SEE subsidiary as part of a package including Austrian and Italian assets to Bank Austria, but the potential buyer pulled out earlier this year.

"The usual suspects" in Russia, Turkey, Southeast Asia and the European Union are potential bidders for the lenders, Kranebitter suggests. "Someone who has an interest in this market of 20m people as a bank but also to accompany their region's exporting industries" would be a probable bidder, he said.

Lenders including Volksbank, KBC and Allied Irish have all been forced to unload CEE assets over the past two years to meet conditions for received state aid. Those deals opened entry to the region for Spain's Banco Santander - a late starter from Western Europe - and Russia's Sberbank, which faces political resistance to plans to expand its presence.

The Russian state-controlled giant has earmarked the robust economies of Poland and Turkey as priority markets for acquisition, and reports this week claim that it has resurrected its interest in buying Denizbank from Belgium's Dexia, which is also shedding assets in the wake of a bailout. However, following a series of M&A deals, targets in Poland look few and far between, whilst the Polish security services have complained of Russian intelligence efforts to influence financial market regulator KNF.

Hypo group is clearly hoping to tempt an emerging market investor to take a punt on a restructured SEE network as an entry point to the rest of the EU then. The unit in the former Yugoslavia reported a post-tax profit of €18m last year, followng a €117m loss in 2010, as provisions for bad debt declined by more than half.

Kranebitter claims he expects to exceed that performance this year in a bid to build the network into a more valuable concern that will recoup as much value as possible for Vienna. "We continue to fight for customers, build up more deposits and selectively open branches here or there, because only a living company has a value for investors," he said.

However, the Austrian bank will have few illusions of just how hard a sell it is facing. Parent Hypo Group Alpe Adria recently admitted defeat in attempts to offload its various units in one lump, and restructured its assets to reflect a new strategy to sell them off piece by piece in April. The bank has said it hopes to offload its Austrian retail banking unit, as well as Italian operations, by the end of this year. FriedlNews reports that once all subsidiaries are spun off and sold, a "small and exclusive private bank with 400 employees" will remain.

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